Like many other faculty, we have wondered where Temple’s Administration was getting the more than $300 million to fund a number of major construction projects while it claims that it is facing serious financial shortfalls which it proposes to address by tuition hikes, faculty hiring freezes, increased class sizes, and the like. The construction projects, which can be viewed at http://www.temple.edu/2020/projects/, are part of President Hart’s vision in her “Temple 20/20” plan.

One project, a 20,000 square foot fitness center for which a cost is not listed, has already been completed. A second project is a $48 million, 140,000 square foot addition to Pearson and McGonigle Halls that is intended “to provide new retail on Broad Street, and enhanced campus recreation facilities.” A third is a $147 million “Residence, Dining, and Retail Complex”; its size is not indicated on the website, but it will be very, very large. The total cost of these three projects is more than $200 million.

Two much-needed academic buildings are among the projects: a $10 million, 45,000 square foot building for the Department of Architecture and a $100 million science and research center of undetermined size (it is in the design stage). These two buildings, it is said, are to be entirely funded by the State of Pennsylvania.

In an interview in the May 27 issue of the Temple Times, Anthony E. Wagner, President Hart’s Executive Vice President, Chief Financial Officer, and Treasurer, said that there are “four pots of money” available for the “Temple 20/20” construction projects: 1) an annual capital appropriation from the state, an appropriation distinct from the state’s appropriation for our educational efforts (this is the money for the academic buildings); 2) gifts from donors; 3) bond sales to investors; and 4) money, or “reserves” in the language of accounting, which comes from “our operating margin, which is in the 3-4 percent range.”

The first three “pots of money” are entirely conventional. The fourth “pot of money,” the money from the operating “margin” (as in “profit margin”) is an entirely unconventional source. We have never heard it referred to at Temple prior to Mr. Wagner’s interview, nor have we heard of it as a part of construction funding at other universities.

Temple’s operating budget was about $836 million in 2010-11. $186 million of that $836 million came from Temple’s state appropriation to support the education of our students and $602.8 million came from the tuition and fees paid directly by those students. When Mr. Wagner said that the fourth “pot of money” was in the “3-4 percent range,” he was saying that the Administration took $25-33 million out of the University’s educational budget to help pay for its “Temple 20/20” plan.

How can our Administrators justify using the tuition money paid by students and the taxpayers supporting those students for construction projects that have , at best, a tenuous relationship to education? We do not believe they can.

Tuition is universally defined as “the charge or fee for instruction.” What is it called when tuition is used as a “pot of money” to fund projects that have little, if anything, to do with the instruction of the payers? It could be called, we think, an illicit, secret tax levied on students and taxpayers without their knowledge or consent. It is a tax that apparently recurs and will, Mr. Wagner promises, continue to recur annually.

We suppose that the Administrators who levy the tax on tuition understand that the best thing about their fourth “pot of money” is that it need not be in the “3-4 percent range” but could be any percentage of the operating budget that they wish it to be. That is so both because there is no oversight, no rules on how much the educational mission of the University can be shorted, and also because the tax, or “margin,” as Mr. Wagner calls it, is not an item in the University’s detailed operating budget, or any of its annual financial reports, or its IRS tax return, but is, rather, under the table. Even if the state or donors or the bond market are unable to provide the construction money, it must seem to our Administrators that there will always be that golden pot of tuition money to dip into.

A month ago, “On the Budget, Part II” was published in the Faculty Herald. It raised questions about how undergraduate tuition money was used by the Administration, noting that only about one-quarter of it went for instruction and asking how the rest was spent. It answered, “Some certainly must have been used to make up for recent declines in state appropriations. Some went into the library, instructional technology, laboratories, student activities, and so forth. But some also went to the expansion of administration and to the high salaries of our top people and middle managers.” Now, as the result of Mr. Wagner’s interview, we have learned that a considerable amount of it is also going to help construct the Hart Administration’s vision of a brave new Temple.

Americans have become increasingly aware of the failures of higher education because in recent months and years there have been a number of books and articles documenting those failures. It is no longer news that many, many students graduate (or drop out) with high amounts of debt, that in many instances the college experience has not added much to their knowledge, that many are ill-prepared for careers in anything remotely like their majors. It is no longer news that the cost of a college education has been driven up by frills like campus recreation centers and retail shops (such as the “Temple 20/20” plan envisions), huge salaries for coaches and administrators, beautification projects, and whatnot.

Temple students, as the last few issues of the Temple News indicate, are quite aware of Temple’s basic problems. An article on April 19 complained about the Administration’s secretiveness on its uses of tuition and remarked on how Temple has shifted from aspiring to be “Harvard on the Delaware” to becoming the “profit-/loss-oriented bureaucratic machine it is today” (p.5) Other articles in that same issue looked at the use of tuition money to subsidize athletics. In an article on April 26, reporter Joel Faltermayer raised the rhetorical question, “After all, what’s more important: making the campus appear hip and edgy to the parents of prospective students, or providing an education that’s not founded upon disgruntled instructors and consumer aesthetics?” The article also remarked on how another tuition increase would further reduce the chances of minority students to get a Temple education (pp. 5-6). Reading through these issues of the News, we get the clear understanding that the writers are very angry not at the Governor or Legislature because of their budget proposals but at Temple’s Administrators because of their upside-down priorities.

We have thought long and hard about what to do at this juncture, and we would like to make three simple proposals:

1) The Administration should immediately print in the Temple Times a year-by-year list indicating exactly how much money has been removed from the operating budget by the Hart Administration for construction.

2) To immediately move us in the right direction, toward properly educating our current and future students, the Administration should immediately un-freeze instructional and research hiring. That is, the money taken out of the operating budget for the Hart Administration construction plan should be put back in for academics.

3) If the Administration decides to raise the tuition of our students, it should give them an itemized accounting of how much of their 2011-12 tuition will be utilized to pay for the Hart construction plan. In addition, because so many serious questions have been raised in recent months about Temple’s priorities, it should also inform students about how much of their tuition money will be spent to pay the salaries of administrators, to subsidize athletics, and to pay for other non-instruction items.

Sincerely,

Professor Philip R. Yannella, CLA

Professor Marina Angel, Beasley School of Law

The
Irrational World of Temple University Finances: Health System Deficits,
Operating Surpluses, Major Tuition Increases, and Continuing Construction (July 11, 2011)

By Philip
Yannella, CLA

Dear
Editor:

In early June, Professor Marina Angel and I published our letter
on “Temple’s Secret Tax on Tuition” in the Faculty Herald. A few days later, I
had a long, detailed, informative conversation with a colleague who I have long
admired and respected because of his knowledge of the University. My colleague
thought that Marina and I had gotten it right about Temple’s use of tuition and
taxpayer money for construction projects. But he thought that our analysis was
incomplete and that, more importantly, we did not convey some basic facts about
Temple’s finances.
As Marina and I wrote, Vice President and CFO Anthony E.
Wagner recently claimed that Temple was financing its construction projects with
four “pots of money”: an “annual” capital appropriation from the state, gifts
from donors, bond sales to investors, and money from an “operating margin”
(i.e., the money “saved” from instruction, what we called the “secret tax” on
tuition). To our comments about these money sources, my colleague correctly
added the following:

- State capital funds are not and never have been
automatically appropriated annually, nor are

they easy to get because they must first be appropriated by
the Legislature and then, second,

released by the Governor; moreover, in hard times, with a
fiscally conservative new Governor,

it is not at all clear that there will be significant State
investments in college campus buildings.

After our conversation, I looked at State forecasts of
its capital expenditures, discovering that

even in the last years of the Rendell Administration the
forecast was not expansive for

education or for other purposes (see p. 843 of the
“Governor’s Executive Budget 2010-2011” at

of Temple, the figures are not impressive: there was $33
million donated in 2005, $49 million in

2006, $62 million in 2007, $65 million in 2008, $45 million
in 2009, and $52 million in 2010. I

would gather that very little of this money was given for
construction.

The
2010 President’s “Report,” incidentally, also indicates how poorly Temple’s $244
million

endowment
compares to the endowments of her “selected peer” institutions (the University
of

Pittsburgh
has $1.8 billion, Penn State has $892 million, Boston University has $892
million,

SUNY
Buffalo has $408 million, and so forth).

- Funding construction
through the sale of bonds to investors will increase Temple’s debt and the

principal and interest
have to be paid back annually to those investors.

Temple’s long term
debt, I later discovered, was $718 million in 2009 and increased by $129

million to $847.7 million in 2010. The amount of long term debt grew by 23%
since 2005, when

it was $603.4 million.

Like
Marina and me, my colleague was, then, profoundly concerned about Temple’s
construction plans. He was also profoundly concerned about the huge losses
being sustained by the Temple University Health System. He pointed out that in
2010 the System lost some $69.5 million; its “patient care activities”
generated $1.08 billion in revenues against $1.15 billion in expenses.
Those figures are on p. 3 of Temple’s most recent audited financial statement at http://www.temple.edu/controller/treasurer'sreports/Fiscal2010.pdf.
The long term debt statement I mentioned above is on p. 2. Temple University and
the Temple University Health System are separate entities, but the audited
financial statement consolidates the finances of the two and thereby allows us
to see the whole picture.
I later studied the audited financial
statements for each year from 2006-09 (each can be accessed on the Temple
website – go to “About Temple,” then “Public Information,” then “Budgetary and
Financial,” then “C”). In each year, the Health System’s “patient care
activities” ran a deficit: $89.8 million in 2009, $74.8 million in 2008, $12.9
million in 2007, and $54.7 in 2006. The total loss from 2006 and 2010 adds up to
$301.7. That huge amount of money is about as large as Temple plans to spend on
its current construction projects.
How long can Temple continue to run
huge Health System losses? Does the Health System have reserves that can cover
such losses? What happens when the Health System can no longer cover its
deficits through its own reserves? Barring a government bailout (how likely is
that?), will the University step in and cover them through University funds?
Will the Health System go into bankruptcy? Each of those scenarios is scary.

I work on the Main Campus. The financial well-being of the
Health System is not my everyday concern. Rather, like many faculty members and
administrators, my everyday professional life is impacted by the financial
well-being of the University’s educational enterprise, especially its
undergraduate enterprise. Like everyone else, virtually every year I receive the
messages from my Dean, who receives them from the Provost, that we are once
again broke, that we need to cut back more, that there will be freezes on this
or that, larger class sizes, pared course offerings, and whatnot. I think I have
been disciplined to regard our educational enterprise as threatened, as very
tenuous, as teetering on the brink of disaster.
But, in actuality, Temple
has had and continues to have plenty of money. Exactly how much is not a matter
of dispute. For even after its huge Health System annual deficits are taken into
account, and even after its average annual $13 million “Auxiliary Enterprise”
deficits are taken into account, Temple still reports that there are large
operating surpluses. Those surpluses – they are titled “Excess/(deficit) of
revenues over expenses” – are reported on p. 3 of the audited financial
statements. In 2010, the surplus was $61.2 million, in 2008 it was $49.2
million, in 2007 it was $98.4 million, and in 2006 it was $31.6 million. There
was one year, 2009, in which there was a deficit of $14.1. The total surplus
from 2006 through 2010 was $226.3 million, an average of $45.2 million per year.
This is the money, paid as tuition, as the “charge or fee for instruction,” that
Temple takes as a “pot of money” to pay for its construction projects (and
perhaps a few other things, too). Readers can use their own imaginations to
picture the enhanced undergraduate academic programs we could produce with an
extra $45 million each year.

Let me summarize what Temple’s own reports show. It has a
Health Care System that runs huge deficits. It is poorly endowed. It gets
relatively meager annual donations. It annually loses a lot of money on its
Auxiliary Enterprises. It takes $45 million out of the operating budget each
year, money largely paid by undergraduates as tuition, uses it for construction
projects, and, as a result, it constantly squeezes its colleges and departments.
For a staterelated institution, for many years, it has had very high tuition
rates.
What rational steps would such an institution take in the summer
of 2011, when the nation faces hard times and many economic uncertainties? Many
rational institutions such as Harvard have in the past three years shelved
construction plans. In March, upon learning of the enormous cuts to higher
education being proposed by Governor Corbett, Penn State’s trustees immediately
froze $138.5 million in construction. Across the country, rational institutions
have tried hard to minimize tuition increases: an article in the July 10
Chronicle of Higher Education, titled “Few Finance Chiefs Are Optimistic in Face
of Slow Recovery,” reported that two-thirds of CEOs said that their institutions
would raise tuition by 3% to 6% this year, while 21% said the increase would be
more than 7%.
This past week, we learned that Temple’s state
appropriation for this year will be cut by 19%, a large number but dramatically
less than the 50% cut that was proposed by Governor Corbett in March. Last year,
the state appropriation was $186 million, so the 19% cut amounts to about $35
million. Temple has announced that, in response to the appropriation loss, it
will cut its operating budget by $36 million, mostly by “reducing administrative
expenses.” But it also announced that it will raise undergraduate tuition by
9.9% for state residents and by 5.4% for out-of-state students. Those increases
place it among the institutions with the highest tuition increases in the
nation. I assume, of course, that none of those other institutions have
operating surpluses, deficit-producing Health Systems, or plans for major
construction during this bad economy.

By my
calculation, the undergraduate tuition to be paid in 2011-12 should be about $32
million more than was paid last year. My calculation assumes that, excluding
Temple Japan, there will continue to be 27,197 fulltime equivalent students and
that 73% will be state residents (those were the September 2010 numbers). The
arithmetic is simple: 19,853 state resident students will each pay $1172 more,
which multiplies to $23.3 million, while 7344 nonresidents will each pay $1170
more, which multiplies to $8.6 million. The total, then, is about $32 million.
As readers will notice, the tuition increase essentially wipes out the state
appropriation cut. Regarding the promised “reduced administrative expenses,” I
propose that we all adopt President Reagan’s “trust and verify” approach.
Will that $32 million in new tuition revenue be used for the instruction of
undergraduates? No, I do not believe so. I expect that, as in prior years, the
increased revenue will be used to subsidize Temple’s construction projects and,
perhaps, a few other things.

Sincerely,
Philip R. Yannella
Professor of English and
American Studies

A Letter
to the Editor (July 12, 2011)

By Mark
Rahdert, Beasley School of Law

Dear
Editor:

I have read with great interest and some
concern the very careful analyses that Philip Yannella and Marina Angel have
provided regarding the funding of Temple’s 2020 construction program. I believe
they make a very strong case for the view (contrary to assurances the
administration has given in the past) that (1) operating budget funds are in
fact being used (in fairly substantial amounts) to fund the university’s
building program, and (2) those funds are being paid through program cutbacks
and student tuition increases. I believe that the time has come for the
university administration to respond in detail to Professor Yannella’s and
Angel’s analysis.

I believe there is widespread support among the
faculty for the general thrust of the 2020 plan. There are many places where
Temple needs new facilities. Many of us share the feeling that to be a truly
dynamic institution we need to be constantly building, so that new buildings are
a sign of progress. But that can be misleading. The year 2020 could see some
great new buildings at Temple, but if we are not careful it could also see a lot
of red ink, spiraling tuition, an accompanying loss of student economic
diversity, and declining academic programs.

Our support for an
ambitious building program should depend on how much it costs and how those
costs will be paid. We cannot afford decades of crushing debt that cut into our
resources for instruction, and our students cannot afford years of mounting
tuition and student loan debt. We already have several construction projects
under way, and I assume there is no real way to cut back on those existing
commitments. But before any other projects in the 2020 plan are undertaken, I
believe we need a frank – and more fully informed – conversation among faculty,
students, administration, and trustees about the likely present and future
budgetary and tuition implications of our building program.